National Association of Home Builders Discusses Economics and Housing Policy

Housing Production Rebounds

Builders started production on 1,178,000 homes in February on a seasonally-adjusted annualized basis. That is a 5.2% increase over a modest slump in January and a 30.9% increase from last February. The increase was broad based with both single-family increasing 7.2% to its highest level since November 2007 and multifamily virtually unchanged at a 0.8% increase. As further evidence of a single-family rebound, completions of single-family homes also increased 6.1% to a 736,000 annualized rate, the highest since November 2008.

Permits to build homes were down 3.1% from January to 1,167,000 per year, but all of the decline was in the multifamily sector. Single-family permits were essentially unchanged at 731,000 per year, in the same range for the past four months. Multifamily permits fell 8.4% but remained in the comfortable range above 425,000 per year. Monthly saw-toothed variations are normal in the multifamily sector.

Two census regions, Midwest and West, saw increases in single-family starts of 18.6% and 24.8% and the South had no change in single-family starts. The Northeast, perhaps as a result of bad weather, experienced a 12.5% fall in single-family starts but still recorded a better month than the 2015 total.

The very positive single-family report further supports other housing and general economic reports that the housing recovery continues unabated. Low mortgage rates, increases in employment, continued US economic expansion and growing pent up demand particularly among existing home owners are supporting more single-family home building.

Some supply constraints have slowed completion times but builders continue to add to inventories as they anticipate future demand. Months’ supplies of new homes for sale are near the accepted equilibrium level of 6 months. However, the supply of existing homes remains very low around 4 months’ supply and the absolute levels have fallen below 2 million.

First time homeowners are 8 times more likely to buy an existing home over a new home so the avenue for more homeowners is being dammed by lack of existing home inventory. Moreover, 8-in-10 new home buyers are existing home sellers so demand for new homes is also being limited by the reluctance or inability of existing home owners to sell their home and release the equity needed to buy a new home. More existing homes for sale will boost the new home market demand and induce more builders to build.